EU puts Korea on tax haven list

The European Union (EU) has named Korea as one of 17 tax havens on its first ever blacklist targeting nations susceptible to tax avoidance and evasion.

The announcement prompted an immediate protest from the Ministry of Strategy and Finance, saying the decision to include Korea constitutes a breach of the country’s taxation sovereignty since it is not an EU member state.

It went on to say that the EU applied taxation standards that failed to meet global standards, citing differences from the method used by the OECD, which did not accuse Asia’s fourth-largest economy of being a tax haven.

Calling the 17 nations “non-cooperative tax jurisdictions,” Brussels said the list is a “tool for securing a level playing field” with the aim of curbing tax avoidance to identify “those that are playing a particular role in tax avoidance and evasion.”

“The adoption of the first-ever EU blacklist of tax havens marks a key victory for transparency and fairness. But the process does not stop here. We must intensify the pressure on listed countries to change their ways,” said Pierre Moscovici, the EU’s Commissioner for Economic and Financial Affairs, Taxation and Customs.

In order to screen and analyze the taxation systems of countries outside of the EU, the Brussels-based body applied listing criteria that it says is in line with international standards.

Among the criteria is transparency, for which the EU said a country should follow “international standards on automatic exchange of information and information exchange on request.”

Another factor is fair tax competition, for which a country should not have a harmful tax regime that encourages artificial offshore structures with no real economic activity. The other main measure that the EU used is a country’s commitment to the OECD’s Base Erosion and Profit Shifting (BEPS) minimum standards. BEPS refers to tax schemes that “exploit gaps” and loopholes in tax rules to “artificially shift profits to low or no-tax locations.”

The Trade Ministry rebuked the EU’s approach, saying the organization applied different measures that “violate international standards,” citing the OECD’s finding that did not identify Korea as a nation with a harmful tax regime.

“OECD’s BEPS project did not find Korea’s tax policy for foreign investments as a harmful tax regime because it applied its criteria on the areas of service and finance with higher business mobility,” said the ministry in a statement released Wednesday.

The ministry said the EU also included the manufacturing sector in its study, implying that was why Korea was named by the EU and not the OECD. The ministry also said the EU’s demand for non-EU member states to adopt its own standards breaches Korea’s taxation sovereignty.

The ministry said the country maintains a high level of tax system transparency on the back of far-reaching tax treaties and the exchange of information. It went on to say that Brussels added Seoul to the list Korea because the government did not promise to revise or terminate some tax policies that the EU had previously complained about by the end of 2018.

“The government will actively respond to the EU’s decision following close consultation with related bodies,” said the ministry.

BY KANG JIN-KYU [kang.jinkyu@joongang.co.kr]